“Industrial districts evolution: a logistics perspective”.

Federica Brandolini

Universita’ Ca’ Foscari di Venezia

Dipartimento di Economia e Direzione Aziendale

1075 S. Trovaso, Dorsoduro

30123 Venezia

tel. 041 2578700

Abstract.

This paper will discuss the industrial district evolution by a logistics perspective. In fact, it is known that a network of companies, as the industrial district, must be supported by an effective and efficient material/information flow.

The analysis stresses the role of logistics as support of relationships between providers and users of outputs; besides both are organised in evolving networks of organisations.

The objectives are:

  • analyse the industrial districts by a logistics perspective,
  • offer a logistics design supporting properly the providers-users relationships and ,
  • propose a solution that fits to the fundamental requests about quality and time.

About references, the discussion is built on the 90’s third party logistics and supply chain management issues and the some relevant industrial district contributions.

These two theoretical fields are approached through a knowledge based core competence perspective.

Knowledge based core competence is defined as the distinctive core knowledge owned by a company and developed during the years in relation to its particular and specific framework of relationships with suppliers and customers.

Therefore the industrial district is described as network of companies, where each company is specialised in a particular task. And this specialisation is conceptualised as the result of knowledge based division of labour between companies.

Under pressures of globalisation and internationalisation the districts are redesigning their organisation, opening their boundaries to new markets and suppliers.

Knowledge based division of labour represents a reply to these changes. This specialisation on tasks, strictly related to the core knowledge, will represent the competitive advantage, that is the chance for the companies to become a leading-company.

Opening the boundaries to world-wide linkages, the districts should gain economies of scale of knowledge and economies of variety, while the logistics costs should increase.

By the way the logistics activities should become the core competence of logistics leading-companies.

In fact, it could be argued that the companies inside the districts will be facing some logistics management challenges: “inbound district logistics” and “outbound district logistics”.

And from a knowledge labour division perspective, logistics leading-companies should work on these tasks.

Focusing on inbound district material/information flows, the goal is suggest a logistics design that fits to the evolving organisation of industrial districts. Furthermore logistics, emphasised as a link between providers and users of output, should be optimised to meet the needs of the users (quality and time).

1. Introduction.

Under the pressures of globalisation and internationalisation industrial districts are compelled to redesign their organisation in order to open their boundaries to new markets and suppliers.

So the key to create competitive advantage and the opportunity to become leading-edge companies lies in the exploitation of the core knowledge that rests in the organisations’ task specialisation or, in other words, core competences. The connection of the core competences across companies creates the effective information and knowledge flows that deliver the time and quality improvements that customers in global markets require. In implementing this strategy for effectiveness and efficiency increase in the networks, the industrial districts will be able to open their boundaries to build global linkages and thus gain economies of scale of knowledge and economies of variety.

However, in supporting global linkages, logistics costs of companies belonging to districts will increase, so that logistics activities should better become the core competence of specialised logistics service providers.

On this basis the analysis of the evolution of industrial districts will have to address the role of logistics in supporting the relationships between providers and users of outputs, both of which are organised in evolving networks of companies. And it will end with the proposal of a design of inbound district logistics.

The analysis will be undertaken from the knowledge-based, core competence perspective. Knowledge based core competence is defined as a company’s distinctive core knowledge owned and historically grown in relation to its idiosyncratic network of relationships with suppliers and customers. Under this view, the industrial district will be proposed as a network of companies with highly individual specialisation in a particular set of tasks. And this specialisation will be conceptualised as the result of knowledge based division of labour between companies. In light of the challenges posed by globalisation and internationalisation, knowledge based division of labour provides an effective response to organisations, networks and thus industrial districts, to continue to sustain and further develop their competitiveness.

2. Industrial Districts by a knowledge based perspective.

To define an industrial district some elements are peculiar: the geographically localisation, the concentration of companies’ competences on a product, the sense of social community and cooperation related to the relationships among the companies that creates a kind of “identità collettiva che viene usata come mezzo di comunicazione e affidamento reciproco”, “la costruzione di circuiti di autoreferenza che lo riproducono nello spazio e nel tempo”[1]. (Rullani, 1995)

The concept of industrial district refers to companies that have improved a division of labour inside a localised area. Each company is specialised in a task/output, and the division of labour concerns the division of the manufacturing process among the companies. Some companies supply components and material, some companies work as assembly factories, others provide particular processes.

Linking these outputs and processes together the districts delivery the product to the end users. Different linkages will provide different variations of the same product. (Visconti, 1996)

Specialising their competences the companies narrow their core knowledge and exchange it. On these interactions among companies, that refer to the communication level and the operations coordination, the district grounds its competitive advantage.

Adopting the knowledge as category of analysis means to understand the way the knowledge is created, developed, transferred and shared by the companies belonging to the district. And the shapes of these processes can be recognised as the peculiarities of industrial districts.

The creation of knowledge of a company can be described as a continuos process of conversions of knowledge through two different status: the context knowledge and the codified knowledge. (Di Bernardo, Rullani 1990) The process of creation of knowledge develops as a spiral among those two extremes.

The knowledge inside the district is developed in the same way. The companies as a whole develop context knowledge, that is strictly linked to the district they belong to. To interact with companies, that are outside the district, they need to translate it into codified knowledge that can be transferred and understood. Through this process the district and its companies gain economies of scale of knowledge and economies of variety of knowledge. (Beccattini, Rullani, 1993; Grandinetti, Rullani, 1996; Kogut, Zander, 1992)

3. Districts as a local networks of companies.

Analysing their design, the industrial districts may be viewed as local systems that have the structure of a network of companies.

From a division of cognitive labour perspective, inside the network each company has it specific task. And the coordination of different tasks provides the proper output to the customers.

Few are the basic actors on which interactions the network grounds (Cuoa, 1996). The specialists on production of modules, as the specialised manufacturers, are the most common inside the districts. On the basis of a specific distinctive knowledge they produce components and parts. (Unioncamere, 1995)

To provide an output that fits to the customer’s requirements different specialists should interact. The organisers of supply systems, as interfaces among the customers and the supply chains, manage a complex task. They understand the needs, find the right specialists, and coordinate the value chains to delivery the desired outputs (Norman, Ramirez, 1994; Rullani, 1998).

So improving a network, providers of support to the interactions are needed. Their task is to offer the logistics and communication services defining also the related standards and quality requirements.

The last basic actors are the “organisers of the network”, to which the value chains, set by the organisers of supply chains, belong. They project the network defining the rules that govern the interactions among the actors. And they operate to support the survive and development of the identity of the network (Rullani, 1998)

Actually in the organisation of Italian industrial districts, as networks of companies, there seem to be a few lacks. Some of the basic actors, previously described, are missing or not properly developed. According to Albertini and Pilotti, “il distretto rappresenta […] una modalità di divisione del lavoro [cognitivo] che, rivelandosi incompleta nelle forme di trasferimento e ritrasferimento delle conoscenze, necessita di infrastrutture di servizio in grado di supportare nuove traiettorie innovative e per fondare nuovi vantaggi competitivi di non breve periodo per fronteggiare la concorrenza soprattutto in settori maturi come quelli dominanti nel Nordest”[2]. (Albertini, Pilotti, 1996)

Among these services for the survive and development of the districts, logistics plays a fundamental role, as essential support to interactions among companies taking part to networks/districts/supply systems.

4. Supply chain management and third party logistics.

Reviewing the logistics literature on networks of companies two fundamental concepts can be highlighted: the supply chain management and the third party logistics.

The concept of Supply Chain Management (SCM) has been improved during the last years. Actually a multitude of definitions of supply chain management are available but all derive from an expansion of the notion of logistics.

During the last fifteen years logistics has evolved from the identification to the physical distribution usually managed by the marketing/sales function to the broader concept of integrated logistics. So “the logistical process is viewed as a system that links an enterprise with its customers and suppliers. Information flows from and about customers in the form of forecasts and orders and is refined through planning into specific manufacturing and purchasing objectives. As materials and products are purchased, a value-added inventory flow is initiated which ultimately results in ownership transfer of finished products to customers. […] Logistical operations of an enterprise are divided into three categories: (1) physical distribution, (2) manufacturing support, and (3) purchasing”. (Bowersox, 1996)

The Council of Logistics Management has provided a further general definition: logistics is “the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements”. (Lewis, Talalayvesky, 1997) The second notion of logistics is broader than the first one. It stresses the concept of logistics as integrated process that crosses the functional areas inside the company. And the main benefit of integration of logistics management should be to minimize total costs, related to purchasing, manufacturing support and physical distribution, while achieving a desired customer service level. (Gustin, Daugherty, Stank, 1995)

The supply chain management grounds on this notion of logistics and broadens it. The integrated logistics should not refer strictly to the boundaries of the companies. In the supply chain the span of logistics management crosses the boundaries of the assembly company to be integrated with the logistics processes of suppliers, and channels of distribution to deliver the right product, at the right time, at the right cost, in the right quantity. (Coyle, Bardi, Langley, 1996)

“It must be recognized that the concept of supply chain management whilst relatively new, is in fact no more than an extension of the logic of logistics. Logistics management is primarily concerned with optimizing flows within the organization whilst supply chain management recognizes that internal integration by itself is not sufficient”. (Christopher, 1997)

The supply chain management strategy may provide success to the whole of companies belonging to a value chain built on a common logistics management.

The Third Party Logistics (TPL) develops inside this framework too. It refers to the decision of neither a company, or a network of companies as a supply chain, to purchase a variable span of logistics activities (just few or the whole logistics function) from a provider of logistics services. As it can be argued, third party logistics and logistics outsourcing are interchangeable terms.

Actually the fundamental reasons to adopt this option are the pressures of the global economy, the international sourcing strategies, and the need to reduce costs and improve service quality and productivity. This context presses the companies to focus on their competitive advantages becoming likely to outsource logistics activities. (Moore, 1998; Daugherty, Stank, Rogers, 1996)

A branch of logistics has been developed to analyse and define the basic elements to improve and manage the third party logistics. These refer to vendor/suppliers selection (cost/service analysis, benchmarking technique), third party logistics providers/shippers relationships and required information system. (Maltz, Ellram, 1997; Sink, Langley, 1997; Bagchi, Virum 1996)

The last developments inside logistics literature light two main issue: the internationalisation of supply chains, the integration of third party logistics, as fourth party logistics, with supply chain management.

An internationalising supply chain should be also a proper answer to challenges as globalisation. As Levy points out, “many firms have responded to the globalization of business by developing international supply chains in which the various value-adding activities comprising a finished product are dispersed geographically in a number of countries”. (Levy, 1997)

In this complex evolving frame of overlapping international supply chains the third party logistics may represent a relevant strategic option. In fact “the whole theme of [logistics] outsourcing is not just to save money. […] It’s a way of combining processes to get them done better than if done separately.” (Quinn, 1999)

Furthermore to respond even better to the complex requirements of supply chain management, a new actor is growing: the fourth party logistics operates as interface among customers and third party logistics providers. “In essence, a Fourth Party Logistics provider is a supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution”. (Bauknight, Bade, 1999)

Do these concepts fit to the organisation of industrial district and provide relevant advice to design properly the district logistics?

Basically these concepts have been developed referring to the typical medium/big companies that operate in terms of economies of scale while inside the industrial districts the companies are medium/small size and base the competitive advantage on their distinctive knowledge.

So inside the supply chain management perspective the logistics is described as the new value-driver that should be optimise to minimise the cost/service trade-off. And the third party logistics could be useful to pursue this goal.

Actually to meet the peculiarities of the district and the division of cognitive labour perspective, the logistics should be highlighted as a link between providers and users of goods, services and information. It should be designed taking care of its role as a linkage.

Arguing this way concepts as supply chain and third party logistics can be translated to fit to the logic of the knowledge based approach to be applied to the industrial district.

The supply chains, developing as subsystems crossing the boundaries of the districts, may identify the improvement of supply systems/value streams that should be activated and organised by both the companies that belong to the districts and those which are located outside it, to deliver the outputs that fit to the requirements of the customers.

And the third party logistics may be an option to get the proper logistics services to support the interactions on which the evolving upstream and downstream supply systems ground.

So both these concepts may be integrated in a logistics design that fits to the industrial districts and that pursues objectives as quality, time of delivery.

5. The value of logistics inside industrial districts.

Logistics may be defined as a link. It represents the link from the upstream to the downstream of the supply systems that operate through the districts. It supports both the interactions among the companies that belong to the supply system and among the supply system and the customers.

Having described the district as a local network based on division of cognitive labour, the value of logistics, as a link, is to improve a better use of the knowledge by all the actors that create the network and support them to gain economies of replication of knowledge and economies of variety of knowledge.

And the Logistics Service Provider may manage this task supplying the proper logistics services to the other actors of the network.

Inside the network and thus inside the district the interactions among actors develop on two overlapping levels: the interactions among providers and users of logistics service add to the interactions inside the supply chains and among supply chains and customers.

Fundamentally “[…] a firm using logistics third parties must manage at least two external relationships. If distribution functions are being outsourced, the relevant dyads are logistics buyer/logistics supplier and logistics supplier/final customer. If materials management or inbound logistics is contracted out, the key interfaces are buyer/logistics supplier and logistics supplier/material supplier”. (Maltz, Ellram, 1997)

The innovation of logistics services comes from the valorisation of these overlapping interactions.

To pursue this objective a particular definition of user, on which the concept of logistics interactions grounds, is proposed. The users of logistics services are neither couples made by companies (for example a assembly company and one of its suppliers), or couples made by companies and their customers. Each couple is an effective/potential user of logistics services. The couple/user is a sort of “double user” and identifies a complex actor that is provided with different identities and contrasting needs.